UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 of the Securities Exchange Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1995 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to .
Commission file number: 33-20614
SHOPCO REGIONAL MALLS, L.P.
Exact name of Registrant as specified in its charter
Delaware 13-3217028
State or other jurisdiction of
incorporation or organization I.R.S. Employer Identification No.
3 World Financial Center,
29th Floor, New York, NY 10285-2900
Attn. Andre Anderson zip code
Address of principal executive offices
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (x)
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not applicable.
Documents incorporated by reference: See Exhibit Index at Item 14.
PART I
Item 1. Business
(a) General Development of Business
Shopco Regional Malls, L.P., a Delaware limited partnership (the "Partnership")
was formed on March 11, 1988. The affairs of the Partnership are conducted by
its general partner, Regional Malls Inc. (the "General Partner," formerly
Shearson Regional Malls, Inc.), a Delaware corporation and an affiliate of
Lehman Brothers Inc. ("Lehman"). The sole limited partner of the Partnership
is Regional Malls Depositary Corp., (formerly Shearson Regional Malls
Depositary Corp., the "Assignor Limited Partner"). The Partnership is the
general partner of Shopco Malls L.P. (the "Owner Partnership", formerly
Shearson Shopco Malls L.P.), a Delaware limited partnership that is the owner
of the two enclosed regional malls, The Mall at Assembly Square ("Assembly
Square") located in Somerville, Massachusetts and Cranberry Mall ("Cranberry")
located in Westminster, Maryland (both Assembly Square and Cranberry are
referred to herein as the "Malls"). The sole limited partner of the Owner
Partnership is Shopco Limited Partnership ("Shopco L.P."), a Delaware limited
partnership and an affiliate of The Shopco Group. (The Partnership and Shopco
L.P. are referred to collectively as the "Owner Partners.")
On June 14, 1988 the Partnership commenced an offering of 110,000 depositary
units ("Units") at $1,000 per Unit to be sold by the underwriter, Lehman,
(formerly Shearson Lehman Brothers Inc.) on a "best efforts" basis (the
"Offering"), of which the Partnership accepted subscriptions of only 70,250
Units, the maximum closing amount authorized by the Amended and Restated
Agreement of Limited Partnership of Shopco Regional Malls, L.P. (the "Agreement
of Limited Partnership"). Concurrent with the consummation of the Offering,
the Assignor Limited Partner assigned its rights as a limited partner to the
holders of Units ("Unitholders") who then became limited partners.
The Partnership was formed to acquire the fee interest and improvements in the
Malls. The Malls were purchased using the proceeds of the Offering, the
issuance of two Promissory Notes and a loan from Lehman Brothers Holdings Inc.
("Lehman Holdings", formerly Shearson Lehman Brothers Holdings Inc.), an
affiliate of the General Partner, (the "Gap Loan") in October 1988. The
aggregate purchase price of the Malls was $96,205,500. Assembly Square was
acquired from Somerville S.C. Associates L.P., a Massachusetts limited
partnership for a purchase price of $42,358,000 on October 11, 1988. Cranberry
was acquired from Cranberry L.P., a Maryland limited partnership and an
affiliate of The Shopco Group for a purchase price of $53,847,500 on October 5,
1988.
Two mortgage loans were issued in October 1988 in the initial principal amounts
of $28,000,000 (the "Assembly Note") from the Aetna Life Insurance Company and
$27,250,000 (the "Original Cranberry Note") from the Mutual Life Insurance
Company of New York ("MONY"). In September 1990, MONY issued an additional
mortgage loan in the original principal amount of $3,775,000 (the "Additional
Cranberry Note") and at such time, the Original Cranberry Note and the
Additional Cranberry Note were consolidated ( the "Cranberry Note"; the
Assembly Note and Cranberry Note will be referred to collectively as the "First
Mortgage Loans"). The MONY loan was subsequently purchased by Metropolitan
Life Insurance Company. The Assembly Note matured on November 1, 1992 and was
modified and extended until November 1997. The Cranberry note matured on
November 1, 1993, was extended to May 1994, and was modified and extended until
1999. See Note 6 to the Consolidated Financial Statements and Item 7 for a
description of the terms of the refinancing of the Assembly and Cranberry
notes.
The Owner Partnership's business, as owner of the Malls, is somewhat seasonal
since a portion of its revenue is derived from a percentage of the retail sales
of certain tenants in the Malls. Generally such sales are higher in November
and December during the holiday season.
(b) Financial Information about Industry Segments
Substantially all of the Partnership's revenues, operating profit or loss and
assets relate to its interest as general partner of the Owner Partnership whose
operating profit or loss and assets relate to its ownership and operation of
the Malls.
(c) Narrative Description of Business
The Partnership's primary business is acting as general partner for the Owner
Partnership. The Owner Partnership's sole business is the ownership and
operation of the Malls (See Item 2 for a description of the Malls and their
operations). The Partnership intends to hold the Malls for an approximate
maximum of ten years from their respective acquisition dates. The
Partnership's investment objectives are to:
(1) provide quarterly cash distributions, a substantial portion of which
should not be subject to Federal income tax on a current basis by
reason of available tax deductions (See Item 5 for a description of the
Partnership's policy concerning distributions);
(2) realize capital appreciation of the Malls; and
(3) preserve and protect the capital of the Partnership and the Owner
Partnership.
There is no assurance that these objectives will be achieved.
Competition
See Item 2 for a discussion of competitive conditions at the Malls.
Employees
The Partnership has no employees. The business of the Partnership is managed
by the General Partner. The Malls are managed on a day-to-day basis by Shopco
Management Corp., (the "Property Manager") an affiliate of The Shopco Group and
Shopco L.P. See Item 13 and Note 8 to the Consolidated Financial Statements
for the terms of the Management Agreement and amounts paid thereunder.
Item 2. Properties
The Mall at Assembly Square
Assembly Square, located in Somerville, Massachusetts, was originally an
assembly plant for Ford Motor Company that was renovated into a shopping center
and opened in 1980. The mall is a single level, enclosed regional shopping
mall anchored by two major department stores, Jordan Marsh and Kmart. Assembly
Square contains approximately 322,000 square feet of gross leasable area
(including kiosk space) and has parking for 1,588 automobiles. Jordan Marsh
and Kmart collectively lease 167,040 square feet of gross leasable space from
the Partnership.
Under the terms of the refinanced first mortgage loan, the Partnership
completed a renovation of Assembly Square in the fourth quarter of 1993
including improvements to the floor, ceiling, roof, lighting and fixtures.
Additional improvements to the food court area were completed in 1995.
The total gross leasable building area of Assembly Square is allocated as shown
in the table below.
Square Feet Percentage of
Leasable to Gross Leasable
Tenants Tenants Area
Anchor Stores:
Jordan Marsh 72,240 22%
Kmart 94,800 30%
Enclosed Mall Tenants 155,315 48%
Total 322,355 100%
Mall Tenants
As of December 31, 1995, Assembly Square had 42 mall tenants (excluding anchor
tenants) occupying gross leasable area of approximately 132,000 square feet.
As of December 31, 1995, Assembly Square had 19 vacant mall stores containing
approximately 23,000 gross leasable square feet. The loss of tenants and their
prior poor performance has had an adverse impact on Assembly Square's cash
flow.
As of the filing date of this report, 13 tenants, or their parent corporations,
at Assembly Square have filed for protection under the U.S. Bankruptcy Code.
These tenants occupy 34,910 square feet, or approximately 22.0% of Assembly
Square's leasable area (exclusive of anchor tenants), and at this point their
plans to remain at Assembly Square remain uncertain. Pursuant to the
provisions of the U.S. Federal Bankruptcy Code, these tenants may, with court
approval, choose to reject or accept the terms of their leases. Should any of
these tenants exercise the right to reject their leases, this could have an
adverse impact on cash flow generated by Assembly Square and revenues received
by the Partnership. Please refer to Item 7 for a listing of the tenants at
Assembly Square which have currently filed for bankruptcy protection.
Anchor Tenants
Jordan Marsh currently leases approximately 72,240 square feet of gross
leasable building area at the north end of Assembly Square. The initial term
of the Jordan Marsh lease was scheduled to expire in January 1997. Three
successive five-year renewal options are available on the same terms and
conditions. The annual minimum rent payable under the Jordan Marsh lease is
$144,480 and the annual percentage rent payable thereunder is 2% of gross sales
over $11,000,000 in any one lease year. Consent of the landlord is required
before Jordan Marsh is permitted to assign or sublet its lease to any entity
other than a Jordan Marsh or affiliate thereof. The lease requires Jordan
Marsh to pay its pro rata share of real estate taxes up to $90,300 per year.
Jordan Marsh is required to reimburse the Owner Partnership or pay for its own
insurance and to pay charges for common area maintenance equal to $28,869 per
year as adjusted every five years. In addition, Jordan Marsh pays for all of
its own utilities, including gas, electricity and water. The Owner Partnership
is responsible for making structural repairs to the Jordan Marsh store.
On January 14, 1993, the Partnership and the Jordan Marsh Stores Corporation
executed a second lease modification which extended the tenant's operating
covenant through February 28, 2002 and extended the lease term to February 28,
2007. The lease amendment effectively reinstates the rental provisions that
were in effect prior to the time that an expansion was to be made to the Jordan
Marsh store, which expansion will not occur. Additionally, Jordan Marsh
consented to a future expansion of Assembly, subject to certain limitations, of
up to 50,000 square feet of space. The Partnership had in escrow $2,771,000 as
its contribution towards the Jordan Marsh expansion. In connection with the
modification and extension of the Assembly Note, the escrow was released to the
Partnership which paid $2,000,000 from this escrow to reduce the Assembly Note
principal balance. Pursuant to the Partnership and the Owner Partnership
Agreements, 75% of the remaining $771,000 was distributed to investors and 25%
was added to the Partnership's working capital reserve. See Item 7 for details
regarding the modification of the Assembly Note.
Kmart leases approximately 94,800 square feet of gross leasable building area
at the south end of Assembly Square. In addition to the stated leasable area,
Kmart has the use of an approximately 5,000 square foot mezzanine and an
approximately 5,440 square foot garden shop. The initial term of the Kmart
lease expires on October 31, 2005 and the lease provides for ten successive
five-year renewal options on the same terms and conditions. Kmart pays a
minimum annual rent of $397,513 and an annual percentage rent equal to 1% of
gross sales in excess of $12,500,000 per year. Kmart is obligated to pay its
pro rata share of outdoor common area maintenance expenses, and annual real
estate taxes, provided that any amount above the $44,000 paid in respect of
such taxes is deducted from the percentage rent owed.
Kmart pays its own utilities including gas and electricity. The Owner
Partnership is required to maintain the interior and exterior structure of the
building, clean and maintain the interior common area of the Mall and provide
adequate fire insurance on the building and the entire Mall. In addition, the
Owner Partnership is required to maintain liability insurance in adequate
amounts, with regard to property damage and personal injury/loss of life
occurring within the common areas of the Mall, including the enclosed Mall
area. The Kmart lease permits the premises to be used for any lawful purpose
consistent with maintaining a balanced and diversified grouping of retail
stores. The Kmart lease does not contain any operating covenants and the
tenant may freely assign or sublet the premises, provided, however, that the
tenant remains primarily liable for all covenants under the lease. Further,
should Kmart discontinue the operation of its store, the Owner Partnership as
landlord has the option to cancel or terminate the Kmart lease.
Historical Occupancy - The following table sets forth the historical occupancy
rates for Assembly Square at December 31 for the years indicated.
1995 1994 1993 1992 1991
Including Anchor Stores 93%* 95% 96% 97% 96%
Excluding Anchor Stores 85%* 90% 92% 94% 92%
* Subsequent to December 31, 1995, occupancy at Assembly Square declined to
88% including anchor stores and 76% excluding anchor stores. Please refer to
Item 7 for a discussion of tenant bankruptcies and retail conditions
impacting both sales and occupancy at Assembly Square.
Competition
The General Partner believes the primary trade area for Assembly Square (i.e.,
the primary geographical area from which Assembly Square derives its repeat
sales and regular customers) is the area within a radius of approximately five
miles from Assembly Square. The secondary trade area is believed by the
General Partner to be within a radius of 10 miles from Assembly Square.
Within the primary trade area there is one competitive shopping center, Meadow
Glen Mall, and within the secondary trade area there are four other competitive
shopping centers: The Arsenal Mall, Mystic Mall, CambridgeSide and Square One
Mall.
The Meadow Glen Mall is a single level, 400,000 square foot enclosed mall
located approximately 2 miles northwest of Assembly Square in the adjacent town
of Medford, Massachusetts. The Meadow Glen Mall is anchored by Marshall's and
Bradlee's. In the opinion of the General Partner, Meadow Glen Mall represents
direct competition to Assembly Square. The Arsenal Mall is a 600,000 square
foot, two-level regional mall located approximately 7 miles southwest of
Assembly Square. The Arsenal Mall is anchored by Ann & Hope and Marshall's.
Mystic Mall, a single-level enclosed regional mall, is located approximately
five miles east of Assembly Square. The Mystic Mall is anchored by Stuart's
and De Moulas Supermarket. CambridgeSide is a three-level, enclosed mall
located approximately 3 1/2 miles south of Assembly Square. CambridgeSide
contains 650,000 square feet of leasable space and has three anchor tenants:
Sears, Filene's and Lechmere. Square One Mall is a two-level, 1 million square
foot enclosed regional mall located approximately 6 miles from Assembly Square
and anchored by Filene's, Filene's Basement, Lechmere, Sears, and Service
Merchandise. Retail stores at malls also compete with local shops, stores and
power centers. Generally, competition among retailers for customers is
intense, with retailers competing on the basis of quality, price, service and
location.
During 1995, the Massachusetts-based grocery store chain Stop&Shop announced
plans for the proposed development of a 68,103 square foot grocery store, two
restaurants and adjoining retail space adjacent to Assembly Square. Plans for
the new development provide for construction of a roadway which may entail the
acquisition by the city of Somerville of a 1.5 acre parcel of land owned by the
Partnership. At this point it is uncertain what impact the proposed Stop&Shop
development would have on Assembly Square.
Cranberry Mall
Cranberry is a single level enclosed regional shopping center located in
Westminster, Maryland, approximately 30 miles northwest of Baltimore.
Cranberry, which opened in March 1987, consists of approximately 530,000 square
feet of gross leasable area including space for approximately 90 retail
tenants, a health club, a six-theater cinema complex and four anchor stores;
Sears, Caldor, Leggett and Montgomery Ward. Cranberry is located on 55.61
acres and provides parking for 2,597 automobiles.
The total gross leasable building area of Cranberry Mall is allocated as shown
in the table below.
Square Feet Percentage of
Leasable to Gross Leasable
Tenants Tenants Area
Anchor Stores:
Caldor 81,200 15%
Leggett 65,282 12%
Montgomery Ward 80,260 16%
Sears 70,000 12%
Enclosed Mall Tenants 224,377 43%
Outparcel Store(a) 9,000 2%
Total 530,119 100%
(a) Outparcel store is an auto service center leased to Montgomery Ward.
Mall Tenants
As of December 31, 1995, Cranberry Mall had 64 mall tenants (excluding anchor
tenants) occupying gross leasable area of approximately 186,000 square feet.
As of December 31, 1995, Cranberry Mall had 25 vacant mall stores containing
approximately 38,000 gross leasable square feet.
Anchor Tenants
Sears leases approximately 70,000 square feet of gross leasable building area.
The Sears store opened in October 1987 and the initial term of the lease
expires in 2002, with two successive five-year renewal options. Sears pays an
annual fixed rent of $195,800 and an annual percentage rent equal to 2.25% of
net sales in excess of $10,000,000 up to $15,000,000 and 2% of net sales in
excess of $15,000,000. Beginning in 1993, Sears commenced paying its pro rata
share of increases in real estate taxes, but such tax payments may be deducted
from percentage rent due on an annual non-cumulative basis. Also commencing in
1993, Sears became responsible for contributing to exterior common area
maintenance on a flat rate basis. Sears currently pays all utilities directly
and is not required to carry its own fire insurance. Sears is required to use
the premises as a Sears retail store until the year 2002 or under such other
trade name as the majority of Sears retail stores are then operating.
Thereafter, the tenant may assign or sublet the premises with the landlord's
consent, not to be unreasonably withheld.
Caldor leases 81,200 square feet of gross leasable building area and pays an
annual minimum rent of $574,000. The initial term of Caldor's lease expires in
2008. Four successive five-year renewal options are available at specified
rents. In addition, Caldor pays an annual percentage rent of 2% of gross sales
between $18,000,000 and $24,000,000, and 1.25% of gross sales above
$24,000,000. During each option period, each of the percentage rent figures
increases by $1,200,000. Pursuant to its lease, Caldor is required to pay for
its own fire insurance and a portion of common area maintenance. Caldor obtains
and pays for all utilities directly from the public utilities. During the
first 15 years of the lease, ending March 4, 2002, the tenant is required to
use the premises continuously as a Caldor's retail department store or under
such other trade name as all Caldor department stores in the Baltimore area are
then operating. For the five years following the initial 15 years of the
lease, the tenant may use the premises for a retail department store under any
trade name. The tenant may assign or sublet the premises during the first 15
years of its lease, provided that the assignee or sublessee complies with the
covenants stated above.
On September 18, 1995, Caldor filed for protection under the U.S. Federal
Bankruptcy Code. Caldor has been current with its rental payments to the
Partnership since the bankruptcy filing. Pursuant to the provisions of the
Federal Bankruptcy Code, Caldor may, with court approval, choose to reject or
accept the terms of its lease. Should Caldor exercise its right to reject the
lease, this would have an adverse impact on cash flow generated by Cranberry
Mall and revenues received by the Partnership. Until Caldor files a plan of
reorganization, it is uncertain what effect this situation will have on the
Caldor department store located at Cranberry Mall or on Cranberry Mall itself.
Leggett currently leases 65,282 square feet of gross leasable building area.
The initial term of the lease expires in 2007 and the lease provides four
successive, five-year renewal options at the same rent. Leggett is obligated
to pay an annual fixed rent of $228,487 and an annual percentage rent equal to
2% of sales above $10,608,325. Leggett is responsible for its pro rata share
of increases in real estate taxes after the third year of full assessment but
it may deduct one-half of these tax payments on a cumulative basis from
percentage rent due. Utility charges are paid directly to the public utility
and Leggett is not required to carry its own fire insurance or to pay for
common area maintenance. During the first 15 years of the lease, ending March
4, 2002, the tenant is required to use the premises as a Leggett's retail
department store or under such other trade name as Leggett's is then operating
substantially all of its department stores. The tenant cannot assign or sublet
the premises during the first 15 years of the lease term without the landlord's
consent to anyone other than another Leggett mercantile company of comparable
net worth as the tenant.
Montgomery Ward leases approximately 80,000 square feet of gross leasable
building area and 9,000 square feet for an automotive center. The Montgomery
Ward store opened for business on November 4, 1990 and the initial term of the
lease expires in 2010 with four successive five-year renewal options.
Montgomery Ward pays an annual fixed rent of $348,114 and an annual percentage
rent equal to 2.5% of the net retail sales in excess of $13,924,560.
Montgomery Ward is required to reimburse the landlord for its pro rata share of
insurance and utility costs and real estate taxes based on its gross leasable
area of the building. Montgomery Ward will be required to reimburse the
landlord for a portion of the common area and maintenance charges as set forth
under the lease agreement. During the first 15 years of the lease term, the
tenant is required to use the premises as a retail store under the trade name
Montgomery Ward or under such other name as the tenant is doing business in the
majority of its retail department stores in the State of Maryland. Montgomery
Ward has the right to sublease the premises at any time during its lease term
with the landlord's written consent, however, they will not be relieved of
their obligations under the terms of the lease.
Historical Occupancy
The following table sets forth the historical occupancy rates for Cranberry
Mall at December 31 for the years indicated.
1995 1994 1993 1992 1991
Including Anchor Stores 93% 91% 92% 93% 92%
Excluding Anchor Stores 83% 80% 80% 83% 81%
Competition
The General Partner believes that the primary trade area for Cranberry (i.e.,
the primary geographical area from which Cranberry derives its repeat sales and
regular customers) is the area within a radius of approximately 15 miles from
Cranberry. The General Partner believes the secondary trade area is within a
radius of 15 to 20 miles from Cranberry.
There are no competitive shopping malls in the primary trade area of Cranberry.
However, a 116,000 square foot free-standing WalMart opened in November of 1992
near Cranberry in the Englar Business Park. In the secondary trade area there
are three competitive shopping centers; Hunt Valley Mall, Carrolltowne Mall and
Owings Mill Mall. Hunt Valley Mall is a bi-level enclosed shopping center
located approximately 25 miles east of Cranberry and is anchored by Macy's and
Sears. Carrolltowne Mall is located 25 miles from Cranberry and was expanded
and enclosed during 1989. Carrolltowne Mall is oriented to the discount
shopper. Owings Mill Mall is located approximately 25 miles from Cranberry and
is anchored by Saks Fifth Avenue, Macy's and Hechts and caters to the upscale
market. Cranberry also competes with the North Hanover Mall in Hanover,
Pennsylvania, located 26 miles north of Cranberry. North Hanover Mall is a
450,000 square foot regional mall anchored by Bon Ton, J.C. Penney, Kmart and
Sears. Retail stores at malls also compete with local shops, stores and power
centers. Generally, competition among retailers for customers is intense, with
retailers competing on the basis of quality, price, service and location.
Item 3. Legal Proceedings
On March 7, 1996, a purported class action, Ressner v. Lehman Brothers, Inc.,
was commenced on behalf of, among others, all Unitholders in the Court of
Chancery for New Castle County, Delaware, against the General Partner of the
Partnership, Lehman Brothers, Inc. and others (the "Defendants"). The
complaint alleges, among other things, that the Unitholders were induced to
purchase Units based upon misrepresentation and/or omitted statements in the
sales materials used in connection with the offering of Units in the
Partnership. The complaint purports to assert a claim for breach of fiduciary
duty based on the foregoing. The Defendants intend to defend the action
vigorously.
Item 4. Submissions of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Unitholders at a meeting or
otherwise during the year for which this report has been filed.
PART II
Item 5. Market for Registrant's Limited Partnership Units and Related Security
Holder Matters
(a) Market Price Information
The Partnership has issued no common stock. There is no established trading
market for the Units nor is there anticipated to be any in the future.
(b) Holders
As of December 31, 1995, there were 5,163 Unitholders.
(c) Distribution of Net Cash Flow
The Partnership's policy is to distribute to the Unitholders their allocable
portion of Net Cash Flow (as defined in the prospectus incorporated herein by
reference) with respect to each fiscal year in quarterly installments.
Distributions of Net Cash Flow, if any, are paid on a quarterly basis to
registered Unitholders on record dates established by the Partnership, which
generally are the last day of each quarter.
Commencing with the 1991 third quarter, the General Partner suspended quarterly
cash distributions to the Unitholders. The decision to suspend cash
distributions was prompted by several factors including: (i) the need for
greater capital reserves for tenant allowances and other leasing related costs
due to increased competitiveness of the retail industry, (ii) anticipated costs
associated with refinancing or modifying the Assembly Note which matured in
November 1992, and the Cranberry Note which matured in November 1993, (iii) the
need for reserves to cover capital improvements, primarily at Assembly Square,
(iv) the continued decline in sales at Assembly Square, and (v) the sluggish
economy which resulted in slower than expected leasing of Cranberry and caused
several tenants at Cranberry to close or seek rent relief from the Owner
Partnership. The refinancing of the Assembly Square Note was secured in late
1992 and the renovation of Assembly Square was completed in 1993. Following
the completion of the Cranberry mortgage refinancing in May 1994 (see Item 7
for a discussion of the Cranberry mortgage refinancing), the General Partner
evaluated the Partnership's cash flow and anticipated funding needs to
determine if and when cash distributions could be resumed. Based on this
evaluation, the General Partner reinstated cash distributions commencing with
the first quarter of 1995. The Partnership paid its 1995 fourth quarter
distribution, in the amount of $3.78 per Unit, on February 9, 1996.
The General Partner is considering all available alternatives to improve
occupancy and sales at both Assembly Square and Cranberry Mall. These
alternatives include the funding of additional select capital improvements.
Should the General Partner implement a capital intensive program in an effort
to improve operations, it could impact the Partnership's ability to pay future
cash distributions.
The General Partner is currently reviewing the status of continued cash
distributions in light of the significant further decline in occupancy and
sales at Assembly Square. Based on current projections, it is likely that cash
flow from Assembly Square will not be sufficient to cover all of the property's
obligations, including servicing the payments of interest and principal due
under the first mortgage loan. While the General Partner anticipates
initiating discussions with the lender, if it is concluded that a modification
of debt service payments is necessary, there can be no assurances that such
discussions will result in any kind of agreement which would improve the
property's cash flow position. Therefore, the General Partner considers it
likely that cash distributions to the limited partners will be suspended
beginning with the first quarter of 1996 in order to facilitate payment of the
Partnership's debt and other property obligations.
Item 6. Selected Financial Data
(dollars in thousands except per Unit data)
As of and for the years ended December 31,
1995 1994 1993 1992 1991
Total Income $ 13,806 $ 13,985 $ 13,157 $ 12,395 $ 12,301
Net Income (Loss) $ (17,536) $ 693 $ (447) $ (1,563) $ (1,279)
Net Income (Loss)
per Unit $ (247.13) $ 9.77 $ (6.30) $ (22.03) $ (18.03)
Cash Distributions
per Unit $ 15.00 $ - $ 8.23(a) $ - $ 29.75
Real Estate, net of
accumulated depreciation $ 73,162 $ 92,807 $ 94,363 $ 94,055 $ 95,450
Mortgages Payable $ 55,323 $ 55,887 $ 56,455 $ 58,970 $ 59,025
Total Assets $ 81,655 $ 100,542 $ 100,436 $ 104,011 $105,928
(a) A special distribution was made from funds previously escrowed for the
expansion of the Jordan Marsh store at Assembly Square, which did not
occur, and did not represent the resumption of regular quarterly
distributions.
The above selected financial data should be read in conjunction with Item 7 and
the Consolidated Financial Statements and notes thereto in Item 8.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At December 31, 1995, the Partnership had cash and cash equivalents totaling
$6,315,688, compared with $5,514,426 at December 31, 1994. The $801,262
increase is primarily due to net cash provided by operating activities
exceeding net cash used for investing activities and principal payments made on
the Assembly mortgage note.
Real estate at cost, less accumulated depreciation and amortization totalled
$73,161,792 at December 31, 1995 compared to $92,807,476 at December 31, 1994.
The decrease is due to the reduction in the carrying value of Assembly Square
based on management's assessment of the estimated fair market value of the
property. The determination of the estimated fair market value of the property
was based upon the most recent appraisal of the property, which is conducted
annually.
Accounts receivable decreased from $1,090,390 at December 31, 1994 to $708,687
at December 31, 1995 primarily due to the collection of prior-year receivables
at both Assembly Square and Cranberry Mall and increases in the allowance for
doubtful accounts with respect to several tenants at Assembly Square.
Deferred charges increased from $125,112 at December 31, 1994 to $404,321 at
December 31, 1995 primarily due to a disbursement of $325,464 for leasing costs
to obtain a tenant at Cranberry Mall. These costs are being amortized over the
tenant's lease term.
Cash distributions were reinstated during the first quarter of 1995 following
the General Partner's evaluation of the Partnership's cash flow and anticipated
funding needs. As a result, distributions payable increased from $0 at
December 31, 1994 to $265,603 at December 31, 1995 due to the accrual of the
fourth quarter 1995 distribution, which was paid on February 9, 1996 in the
amount of $3.78 per Limited Partnership Unit. The General Partner is currently
reviewing the status of continued cash distributions in light of the
significant further decline in occupancy and sales at Assembly Square. Based
on current projections, it is likely that cash flow from Assembly Square may
not be sufficient to cover all of the property's obligations, including
servicing the payments of interest and principal due under the first mortgage
loan. While the General Partner anticipates initiating discussions with the
lender, if it is concluded that a modification of debt service payments is
necessary, there can be no assurances that such discussions will result in any
kind of agreement which would improve the property's cash flow position.
Therefore, the General Partner considers it likely that cash distributions to
the limited partners will be suspended beginning with the first quarter of 1996
in order to facilitate payment of the Partnership's debt and other property
obligations.
On September 18, 1995, Caldor, an anchor tenant at Cranberry Mall, filed for
protection under the U.S. Federal Bankruptcy Code. Caldor has been current
with its rental payments to the Partnership since the bankruptcy filing.
Pursuant to the provisions of the Federal Bankruptcy Code, Caldor may, with
court approval, choose to reject or accept the terms of its lease. Should
Caldor exercise its right to reject the lease, this would have an adverse
impact on cash flow generated by Cranberry Mall and revenues received by the
Partnership. Until Caldor files a plan of reorganization, it is uncertain what
effect this situation will have on the Caldor department store located at
Cranberry Mall or on Cranberry Mall itself, although Caldor could affirm or
reject its lease prior to filing a plan. Caldor has requested that the
Partnership grant it rent relief which is under negotiation. As of December
31, 1995, no other tenants at Cranberry Mall have filed for bankruptcy
protection.
As of the filing date of this report, the following tenants, or their parent
corporations, at Assembly Square have filed for protection under the U.S.
Bankruptcy Code.
Tenant Square Footage Leased Open/Closed
All For A Dollar 3,464 Open
Merry Go 'Round 3,203 Closed
Lingerie Factory 990 Open
Marianne 6,630 Open
Marianne Plus 6,375 Open
G & G 1,474 Open
5-7-9 1,400 Closed
Bakers 2,214 Open
Jeans West 1,620 Open
Wild Pair 1,620 Open
Coda 2,139 Open
No Name 1,463 Closed
Chess King 2,318 Closed
These tenants occupy 34,910 square feet, or approximately 22% of Assembly
Square's leasable area (exclusive of anchor tenants), and at this point their
plans to remain at Assembly Square remain uncertain. Pursuant to the
provisions of the U.S. Federal Bankruptcy Code, these tenants may, with court
approval, choose to reject or accept the terms of their leases. Should any of
these tenants exercise the right to reject their leases, this could have an
adverse impact on cash flow generated by Assembly Square and revenues received
by the Partnership. During January and February 1996, Merry Go 'Round, Dejaiz,
Chess King , Wilsons, 5-7-9, and No Name closed their stores at Assembly
Square.
Results of Operations
1995 versus 1994
Net cash from operating activities totaled $3,041,866 for the year ended
December 31, 1995 compared with $2,322,015 during 1994. The increase is
primarily due to a decrease in accounts receivable.
For the year ended December 31, 1995, the Partnership generated a net loss of
$17,536,302 compared to $693,491 in 1994. The change from net income to net
loss is primarily due to the write-down in 1995 of Assembly Square to its
estimated fair market value and, to a lesser degree, higher property operating,
general and administrative and depreciation expense along with a decrease in
escalation income.
Rental income for the year ended December 31, 1995 totaled $8,156,792, varying
only slightly from $8,234,058 during 1994. Escalation income, which represents
billings to tenants for their proportional share of common area maintenance,
operating and real estate tax expenses, totaled $5,071,283 during 1995 compared
to $5,322,613 during 1994. The decrease in escalation income is primarily due
to an overaccrual in 1994 for common area maintenance expense recognized in
1995 in addition to an overall decrease in common area maintenance expense in
1995.
Interest income for the year ended December 31, 1995 totalled $396,102 compared
to $229,131 during 1994. The increase in interest income is the result of
higher interest rates earned on higher cash balances maintained by the
Partnership.
Total expenses for the year ended December 31, 1995 totalled $31,518,669
compared to $13,273,682 during 1994. The increase in total expenses is
primarily due to the write-down in 1995 of Assembly Square to its estimated
fair market value and increases in property operating expenses. Property
operating expenses increased from $4,576,316 for the year ended December 31,
1994 to $5,015,637 in 1995. The increase in property operating expenses is
primarily due to increased legal expense related to the proposed Stop&Shop
development adjacent to Assembly Square (please refer to Item 2) and increased
bad debt expense related to several tenants at both Malls.
Interest expense for the year ended December 31, 1995 decreased $244,165
compared to the year ended December 31, 1994. The decrease in interest expense
is primarily due to the refinancing of the Cranberry Note at a lower rate in
the second quarter of 1994 and principal payments made on the Assembly Note.
Assembly Square - Mall tenant sales for the years ended December 31, 1995 and
1994 totalled $23,830,000 and $27,737,000, respectively, representing a 14%
decrease. Mature tenant sales for the years ended December 31, 1995 and 1994
totalled $19,486,000 and $22,402,000, respectively, representing a 13%
decrease. A mature tenant is defined as a tenant that has been open for
business and operating out of the same store for twelve months or more. The
General Partner attributes the decrease in sales to a decline in consumer
spending on softgoods, particularly apparel, a trend experienced by retailers
across the country, especially in the Northeast region, and increased
competition in the trade area. In addition, sales results reflect intensified
competition from area retailers and lower occupancy at the property. As of
December 31, 1995, Assembly Square was 85% occupied (exclusive of anchor
tenants) compared with a 90% occupancy rate at December 31, 1994. Subsequent
to December 31, 1995, occupancy at Assembly Square declined to 88% including
anchor stores and 76% excluding anchor stores.
Cranberry Mall - Mall tenant sales for the year ended December 31, 1995 were
$31,176,000, approximately 2.3% behind sales of $31,923,000 for year ended
December 31, 1994. Mature tenant sales for the year ended December 31, 1995
were $29,225,000, approximately 2% behind sales of $29,827,000 for the year
ended December 31, 1994. The General Partner attributes the decrease in sales
at Cranberry to a decline in consumer spending on softgoods, particularly
apparel, a trend experienced by retailers across the country, especially in the
Northeast region, and increased competition in the trade area. As of December
31, 1995 and 1994, Cranberry was 83% and 80% occupied, respectively (exclusive
of anchor and outparcel tenants).
1994 versus 1993
For the year ended December 31, 1994, the Partnership generated total income of
$13,984,514 and realized net income of $693,491 compared with total income of
$13,157,061 and a net loss of $447,387 for the corresponding period in 1993.
Net cash flow from operating activities totaled $2,322,015 as of December 31,
1994, compared with $2,201,741 for the comparable period in 1993. The increase
in net cash flow and change from net loss to net income are primarily
attributable to an increase in rental and escalation income and a decrease in
interest expense. These were offset partly by an increase in property
operating expenses.
For the year ended December 31, 1994, the Malls generated rental income of
$8,234,058 compared to $8,109,075 for the same period in 1993. The increase is
primarily due to an increase in percentage rents at both Malls, and base rents
at Cranberry Mall.
Escalation income represents billings to tenants for their proportional share
of common area maintenance, operating and real estate tax expenses. Escalation
income for the year ended December 31, 1994 totalled $5,322,613 compared to
$4,721,132, for the same period in 1993. The increase in escalation income for
1994 is largely due to costs associated with Assembly Square's renovation,
which are reimbursable from the Mall tenants and increased common area
maintenance costs and real estate tax expense at Cranberry.
For the year ended December 31, 1994 interest income totalled $229,131 as
compared to $195,183 for the comparable period last year. The increase in
interest income is the result of increased interest rates earned by the
Partnership and higher cash balances maintained by the Partnership.
Miscellaneous income for the year ended December 31, 1994 totalled $198,712 as
compared to $131,671 for the year ended December 31, 1993. The increase in
miscellaneous income is primarily due to the receipt of a $75,000 tenant lease
buy-out at Cranberry Mall during the first quarter of 1994.
Total expenses for the year ended December 31, 1994 were $13,273,682 compared
to $13,606,876 for the corresponding period in 1993. The decrease is primarily
due to a decrease in interest expense and depreciation and amortization expense
offset by an increase in property operating expenses. Interest expense
decreased due to the decrease in the interest rate on a lower principal balance
for the amended Assembly Square loan and a decrease in the interest rate on the
refinanced Cranberry mortgage loan. Depreciation and amortization expense
decreased due to the full amortization of finance fees associated with the
original Assembly Square financing. The increase in property operating expense
is due primarily to increased costs for landscaping, snow removal, electricity
and payroll expenses at both malls, as well as reimbursable costs associated
with the Assembly Square renovation.
Assembly Square - Mall tenant sales (exclusive of anchor tenants) for the year
ended December 31, 1994 were $27,737,000 representing a 6.6% decrease from
$29,711,000 for the year ended December 31, 1993. Sales for tenants (exclusive
of anchor tenants) who operated at the Mall for each of the last two years were
approximately $22,402,000, and $28,026,000. Sales results reflect a decrease
in occupancy at the Mall and increased competition brought on by widespread
discounting by area retailers. As of December 31, 1994, Assembly Square was
90% occupied (exclusive of anchor tenants) compared with a 92% occupancy rate
at December 31, 1993.
Cranberry - Mall tenant sales (exclusive of anchor tenants) for the year ended
December 31, 1994 were $31,923,000, a 3.4% decrease from sales of $33,056,000
for the year ended December 31, 1993. Sales for tenants (exclusive of anchor
tenants) who operated at the Mall for each of the last two years were
approximately $29,827,000, and $29,076,000 in 1994 and 1993, respectively. As
of December 31, 1994, Cranberry Mall's occupancy rate was 80% (exclusive of
anchor and outparcel tenants), unchanged from December 31, 1993.
Property Appraisals
The appraised fair market values of Assembly Square and Cranberry at January 1,
1996, as determined by Cushman & Wakefield, Inc., an independent, third-party
appraisal firm, were $23,500,000 and $44,000,000, respectively, compared with
$38,500,000 and $48,000,000, on January 1, 1995. The $15,000,000 decrease in
the appraised fair market value of Assembly Square, as determined by such
appraisal firm, is based on several factors which include, but are not limited
to, significantly increased competition within Assembly Square's trade area and
substantial deterioration of Assembly Square's tenant mix brought upon by
national problems impacting both individual retailers and retail chains such as
retail consolidations and tenant bankruptcies.
It should be noted that appraisals are only estimates of current value and
actual values realizable upon sale may be significantly different. A
significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. Because of
the nature of the Partnership's properties and the limited market for such
properties, there can be no assurance that the other properties reviewed by the
appraiser are comparable. Additionally, the low level of liquidity as a result
of the current restrictive capital environment has had the effect of limiting
the number of transactions in real estate markets and the availability of
financing to potential purchasers, which may have a negative impact on the
value of an asset. Further, the appraised value does not reflect the actual
costs which would be incurred in selling the property. As a result of these
factors and the illiquid nature of an investment in Units of the Partnership,
the variation between the appraised value of the Partnership's properties and
the price at which Units of the Partnership could be sold is likely to be
significant. Fiduciaries of Limited Partners which are subject to ERISA or
other provisions of law requiring valuation of Units should consider all
relevant factors, including, but not limited to the net asset value per Unit,
in determining the fair market value of the investment in the Partnership for
such purposes.
Item 8. Financial Statements and Supplementary Data
See Item 14a for a listing of the Consolidated Financial Statements and
Supplementary data filed in this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Certain officers or directors of Regional Malls Inc. are now serving (or in the
past have served) as officers and directors of entities which act as general
partners of a number of real estate limited partnerships which have sought
protection under the provisions of the Federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which has
been adversely affected by the economic conditions in the markets in which that
real estate is located and, consequently, the partnerships sought the
protection of the bankruptcy laws to protect the partnerships' assets from loss
through foreclosure.
The following is a list of the officers and directors of Regional Malls Inc. at
December 31, 1995:
Name Office
Paul L. Abbott Director, President, Chief Operating Officer
and Chief Financial Officer
Robert J. Hellman Vice President
Joan B. Berkowitz Vice President
Elizabeth Rubin Vice President
Paul L. Abbott, 50, is a Managing Director of Lehman Brothers Inc. ("Lehman").
Mr. Abbott joined Lehman in August 1988, and is responsible for investment
management of residential, commercial and retail real estate. Prior to joining
Lehman, Mr. Abbott was a real estate consultant and a senior officer of a
privately held company specializing in the syndication of private real estate
limited partnerships. From 1974 through 1983, Mr. Abbott was an officer of two
life insurance companies and a director of an insurance agency subsidiary. Mr.
Abbott received his formal education in the undergraduate and graduate schools
of Washington University in St. Louis.
Robert J. Hellman, 41, is a Senior Vice President of Lehman and is responsible
for investment management of retail, commercial and residential real estate.
Since joining Lehman in 1983, Mr. Hellman has been involved in a wide range of
activities involving real estate and direct investments including origination
of new investment products, restructurings, asset management and the sale of
commercial, retail and residential properties. Prior to joining Lehman, Mr.
Hellman worked in strategic planning for Mobil Oil Corporation and was an
associate with an international consulting firm. Mr. Hellman received a
bachelor's degree from Cornell University, a master's degree from Columbia
University and a law degree from Fordham University.
Joan B. Berkowitz, 36, is a Vice President of Lehman, responsible for asset
management within the Diversified Asset Group. Ms. Berkowitz joined Lehman in
May 1986 as an accountant in the Realty Investment Group. From October 1984 to
May 1986, she was Assistant Controller to the Patrician Group. From November
1983 to October 1984, she was employed by Diversified Holdings Corporation.
From September 1981 to November 1983, she was employed by Deloitte Haskins &
Sells. Ms. Berkowitz, a Certified Public Accountant, received a B.S. degree
from Syracuse University in 1981.
Elizabeth Rubin, 29, is a Vice President of Lehman in the Diversified Asset
Group. Ms. Rubin joined Lehman Brothers in April 1992. Prior to joining
Lehman Brothers, she was employed from September 1988 to April 1992 by the
accounting firm of Kenneth Leventhal and Co. Ms. Rubin is a Certified Public
Accountant and received a B.S. degree from the State University of New York at
Binghamton in 1988.
Item 11. Executive Compensation
The Officers and Directors of the General Partner do not receive any salaries
or other compensation from the Partnership. See Item 13 below with respect to
a description of certain transactions of the General Partner and their
affiliates with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
At December 31, 1995, to the Partnership's knowledge, no investor held more
than 5% of the outstanding Units.
(b) Security ownership of management
Various employees of Lehman Brothers that perform services on behalf of the
General Partner own no units of the Partnership as of December 31, 1995.
(c) Changes in control
None.
Item 13. Certain Relationships and Related Transactions
The General Partner and certain affiliates may be reimbursed by the Partnership
for certain costs as described in the section "Management Compensation" of the
Prospectus, which description is incorporated herein by reference thereto.
First Data Investor Services Group, formerly The Shareholder Services Group,
provides partnership accounting and investor relations services for the
Registrant. Prior to May 1993, these services were provided by an affiliate of
a general partner. The Partnership's transfer agent and certain tax reporting
services are provided by Service Data Corporation. Both First Data Investor
Services Group and Service Data Corporation are unaffiliated companies. A
summary of amounts paid to the General Partners or their affiliates during the
past three years is incorporated by reference to Note 7 to the Consolidated
Financial Statements.
On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the Partnership or the Partnership's General Partner.
However, the assets acquired by Smith Barney included the name "Shearson."
Consequently, the general partner changed its name to Regional Malls Inc., the
Assignor Limited Partner changed its name to Regional Malls Depositary Corp.
and the Owner Partnership changed its name to Shopco Malls L.P. to delete any
references to "Shearson."
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2).
Shopco Regional Malls, L.P. and Consolidated Partnership
(a Delaware limited partnership)
Index to Consolidated Financial Statements and Schedules
Page
Number
Independent Auditors' Report F-1
Consolidated Balance Sheets
At December 31, 1995 and 1994 F-2
Consolidated Statements of Operations
For the years ended December 31, 1995,
1994 and 1993 F-3
Consolidated Statements of Partners'
Capital (Deficit) For the years ended
December 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Cash Flows
For the years ended December 31, 1995,
1994 and 1993 F-4
Notes to Consolidated Financial Statements F-5
Schedule II - Valuation and Qualifying
Accounts F-11
Schedule III - Real Estate and
Accumulated Depreciation F-12
(b) Exhibits
Subject to Rule 12b-32 of the Securities Act of 1934 regarding incorporation by
reference, listed below are the exhibits which are filed as part of this
report.
3. Partnership's Amended and Restated Agreement of Limited Partnership,
dated October 6, 1988, is hereby incorporated by reference to Exhibit A
to the Prospectus contained in Registration Statement No. 33-20614,
which Registration Statement (the "Registration Statement") was
declared effective by the SEC on May 20, 1988.
4.1 The form of Unit Certificate is hereby incorporated by reference to
Exhibit 7 to the Form 8-A dated April 10, 1989.
10.1 The form of Subscription Agreement is hereby incorporated by reference
to Exhibit C to the Registration Statement.
10.2 Escrow Agreement between Partnership and United States Trust Company
of New York, is hereby incorporated by reference to Exhibit 10.2 to the
Registration Statement.
10.3 The form of Depository Agreement between Partnership and Shearson
Regional Malls Depository Corp., as Assignor Limited Partner is hereby
incorporated by reference to Exhibit 10.3 to the Registration
Statement.
10.4 The form of Sale Contract concerning the acquisition of Assembly
Square is hereby incorporated by reference to Exhibit 10.4 to the
Registration Statement.
10.5 Letter of Intent to Purchase Cranberry is hereby incorporated by
reference to Exhibit 10.5 to the Registration Statement.
10.6 The form of Master Rental Income Guaranty is hereby incorporated by
reference to Exhibit 10.6 to the Registration Statement.
10.7 The form of Management and Leasing Agreement is hereby incorporated
by reference to Exhibit 10.7 to the registration Statement.
10.8 Amendment of Mortgage Loan Modification between Shearson Shopco Malls,
L.P. and Aetna Life Insurance Company is hereby incorporated by
reference to Exhibit 10.8 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992.
10.9 Note Modification Agreement between Shopco Malls, L.P. and
Metropolitan Life Insurance Company for Cranberry Mall as of May 31,
1994, is hereby incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994.
27 Financial Data Schedule
(c) Reports on Form 8-K filed during the fourth quarter of 1995: None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 1996
SHOPCO REGIONAL MALLS, L.P.
BY: Regional Malls, Inc.
General Partner
BY: /s/ Paul L. Abbott
Name: Paul L. Abbott
Title: President, Director,
Chief Operating Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
REGIONAL MALLS, INC.
General Partner
Date: March 29, 1996
BY: /s/ Paul L. Abbott
Paul L. Abbott
President, Director,
Chief Operating Officer
and Chief Financial Officer
Date: March 29, 1996
BY: /s/ Robert J. Hellman
Robert J. Hellman
Vice President
Date: March 29, 1996
BY: /s/ Joan Berkowitz
Joan Berkowitz
Vice President
Date: March 29, 1996
BY: /s/ Elizabeth Rubin
Elizabeth Rubin
Vice President
Independent Auditors' Report
The Partners
Shopco Regional Malls, L.P.:
We have audited the consolidated financial statements of Shopco Regional Malls,
L.P. and Consolidated Partnership (a Delaware limited partnership) as listed in
the accompanying index. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedules as
listed in the accompanying index. These consolidated financial statements and
financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Shopco Regional
Malls, L.P. and Consolidated Partnership as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 25, 1996
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate, at cost (notes 3, 5 and 6):
Land $ 11,329,547 $ 15,692,356
Building 69,255,697 88,910,782
Improvements 2,706,206 2,431,816
83,291,450 107,034,954
Less accumulated depreciation and amortization (10,129,658) (14,227,478)
73,161,792 92,807,476
Cash and cash equivalents 6,315,688 5,514,426
Construction escrows (note 5) 416,568 388,525
Accounts receivable, net of allowance
of $797,783 in 1995 and $604,598 in 1994 708,687 1,090,390
Deferred rent receivable 193,387 218,646
Deferred charges, net of accumulated
amortization of $122,757 in 1995 and
$81,794 in 1994 404,321 125,112
Prepaid expenses 454,533 397,791
Total Assets $ 81,654,976 $ 100,542,366
Liabilities, Minority Interest and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 198,949 $ 196,850
Mortgages payable (note 6) 55,323,013 55,887,496
Accrued interest payable 172,111 0
Due to affiliates (notes 7 and 8) 17,007 30,772
Security deposits payable 13,771 15,971
Deferred income 454,667 412,169
Distributions Payable 265,603 0
Total Liabilities 56,445,121 56,543,258
Minority interest (397,677) (198,476)
Partners' Capital (Deficit) (note 4):
General Partner (218,681) (43,318)
Limited Partners (70,250 limited partnership
units authorized,issued and outstanding) 25,826,213 44,240,902
Total Partners' Capital 25,607,532 44,197,584
Total Liabilities, Minority
Interest and Partners' Capital $ 81,654,976 $ 100,542,366
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income (note 3) $ 8,156,792 $ 8,234,058 $ 8,109,075
Escalation income (note 3) 5,071,283 5,322,613 4,721,132
Interest income 396,102 229,131 195,183
Miscellaneous income 182,214 198,712 131,671
Total Income 13,806,391 13,984,514 13,157,061
Expenses
Interest expense 4,339,057 4,583,222 5,186,625
Property operating expenses 5,015,637 4,576,316 4,294,927
Loss on write-down of real estate 17,903,567 - -
Depreciation and amortization 2,619,786 2,512,580 2,542,332
Real estate taxes 1,434,129 1,433,544 1,393,731
General and administrative 206,493 168,020 189,261
Total Expenses 31,518,669 13,273,682 13,606,876
Income (Loss) before minority
interest (17,712,278) 710,832 (449,815)
Minority interest 175,976 (17,341) 2,428
Net Income (Loss) $(17,536,302) $ 693,491 $ (447,387)
Net Income (Loss) Allocated:
To the General Partner $ (175,363) $ 6,935 $ (4,474)
To the Limited Partners (17,360,939) 686,556 (442,913)
$(17,536,302) $ 693,491 $ (447,387)
Per limited partnership unit
(70,250 outstanding) $(247.13) $9.77 $(6.30)
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners' Partner's Total
Balance at December 31, 1992 $ 44,575,509 $ (45,779) $ 44,529,730
Net loss (442,913) (4,474) (447,387)
Distributions (note 9) (578,250) 0 (578,250)
Balance at December 31, 1993 43,554,346 (50,253) 43,504,093
Net income 686,556 6,935 693,491
Balance at December 31, 1994 44,240,902 (43,318) 44,197,584
Net loss (17,360,939) (175,363) (17,536,302)
Distributions (note 9) (1,053,750) 0 (1,053,750)
Balance at December 31, 1995 $ 25,826,213 $ (218,681) $ 25,607,532
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net income (loss) $ (17,536,302) $ 693,491 $ (447,387)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Minority interest (175,976) 17,341 (2,428)
Depreciation and amortization 2,619,786 2,512,580 2,542,332
Loss on write-down of real estate 17,903,567 0 0
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Release of Construction escrows 0 0 192,750
Accounts receivable 381,703 (864,015) (3,636)
Deferred rent receivable 25,259 28,245 (62,800)
Deferred charges (320,172) 0 0
Prepaid expenses and other assets (56,742) (28,538) 14,036
Accounts payable and accrued
expenses 2,099 25,710 5,150
Accrued interest payable 172,111 0 0
Due to affiliates (13,765) 6,747 (4,175)
Security deposits payable (2,200) (17,733) (12,636)
Deferred income 42,498 (51,813) (19,465)
Net cash provided by operating activities 3,041,866 2,322,015 2,201,741
Cash Flows from Investing Activities:
Additions to real estate (836,706) (916,855) (2,692,221)
Construction escrows (28,043) (45,699) (948,741)
Net cash used for investing activities (864,749) (962,554) (3,640,962)
Cash Flows from Financing Activities:
Deferred charges 0 (4,968) (44,632)
Payment of mortgage principal (564,483) (567,814) (2,514,895)
Release of construction escrow 0 955,915 2,578,250
Distributions paid - minority interest (23,225) 0 0
Distributions paid - limited partners (788,147) 0 (578,250)
Net cash provided by (used for)
financing activities (1,375,855) 383,133 (559,527)
Net increase (decrease) in cash and
cash equivalents 801,262 1,742,594 (1,998,748)
Cash and cash equivalents at beginning
of period 5,514,426 3,771,832 5,770,580
Cash and cash equivalents at end of
period $ 6,315,688 $ 5,514,426 $ 3,771,832
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 4,166,946 $ 4,583,222 $ 5,186,625
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
1. Organization
Shopco Regional Malls, L.P. ("SRM") was formed as a limited partnership on
March 11, 1988 under the laws of the State of Delaware. The Partnership is the
general partner of Shopco Malls L.P. (the "Owner Partnership"), a Delaware
limited partnership, which in October 1988 purchased The Mall at Assembly
Square ("Assembly Square") and Cranberry Mall ("Cranberry").
The general partner of SRM is Regional Malls Inc. (the "General Partner")
formerly Shearson Regional Malls, Inc., an affiliate of Lehman Brothers Inc.
formerly Shearson Lehman Brothers Inc. (see below).
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman Brothers").
The transaction did not affect the ownership of the general partner. However,
the assets acquired by Smith Barney included the name "Shearson."
Consequently, effective October 29, 1993, the General Partner changed its name
to Regional Malls Inc. to delete any reference to "Shearson."
The first investor closing occurred in October 1988 and the offering was
completed in April 1989 when the 70,250 total authorized limited partnership
units were accepted.
2. Summary of Significant Accounting Policies
Basis of Accounting - The consolidated financial statements of SRM have been
prepared on the accrual basis of accounting and include the accounts of SRM and
the Owner Partnership. All significant intercompany accounts and transactions
have been eliminated.
Real Estate - Real estate, which consists of buildings, land and improvements,
is recorded at cost less accumulated depreciation and amortization or fair
value. Cost includes the initial purchase price of each property plus closing
costs, acquisition and legal fees and capital improvements. Depreciation is
computed using the straight-line method based on an estimated useful life of 40
years. Depreciation of fixtures and equipment is computed using the
straight-line method over an estimated useful life of 12 years. Amortization
of tenant leasehold improvements is computed using the straight-line method
over the lease term.
Accounting for Impairment - In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the asset's carrying amount. FAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107 "Disclosures about Fair Value of Financial Instruments" ("FAS
107"), requires that the Partnership disclose the estimated fair values of its
financial instruments. Fair values generally represent estimates of amounts at
which a financial instrument could be exchanged between willing parties in a
current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar may be difficult.
Deferred Charges - Mortgage commitment and placement fees, and extension fees
are being amortized over the life of the mortgages. Leasing commissions are
amortized using the straight-line method over the lease term.
Offering Costs - Offering costs are non-amortizable and are deducted from
limited partners' capital.
Transfer of Units and Distributions - Net income or loss from operations is
allocated to registered holders ("Unit Holder"). Upon the transfer of a unit,
net income (loss) from operations attributable to such unit generally is
allocated between the transferor and the transferee based on the number of days
during the year of transfer that each is deemed to have owned the unit. The
Unit Holder of record on the first day of the calendar month is deemed to have
transferred their interest on the first day of such month.
Distributions of operating cash flow, as defined in the Partnership Agreement,
will be paid on a quarterly basis to registered Unit Holders on record dates
established by the Partnership, which generally fall 45 days after quarter end.
Income Taxes - No provision is made for income taxes in the consolidated
financial statements since such liability is the liability of the individual
partners.
Net Income (Loss) Per Limited Partnership Unit - Net loss per limited
partnership unit is calculated based upon the number of limited partnership
units outstanding during the period.
Rental Income and Deferred Rent - The Partnership rents its property to tenants
under operating leases with various terms. Deferred rent receivable consists
of rental income which is recognized on the straight-line basis over the lease
terms, but will not be received until later periods as a result of scheduled
rent increases.
Cash and Cash Equivalents - Cash and cash equivalents consist of short-term,
highly liquid investments which have maturities of three months or less form
the date of issuance. The carrying amount approximates fair value because of
the short maturity of these investments.
Concentration of Credit Risk - Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents in excess of the financial institutions' insurance limits.
The Partnership invests available cash with high credit quality financial
institutions.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Real Estate
SRM's real estate consists of two enclosed malls:
The Mall at Assembly Square in Somerville, Massachusetts, which includes
approximately 25.93 acres of land, was purchased on October 11, 1988 for
$42,358,000. Assembly Square contains approximately 322,000 square feet of
gross leasable area (including kiosk space) including two anchor tenants:
Jordan Marsh and Kmart.
Jordan Marsh currently leases approximately 72,240 square feet of gross
leasable building area and is required to use the premises as a Jordan Marsh
retail store until February 28, 2007 or under such other name as a majority of
the stores currently being operated as Jordan Marsh stores in the Boston,
Massachusetts area are then operated.
Kmart leases approximately 94,800 square feet of gross leasable building area.
The initial term of the Kmart lease expires on October 31, 2005 and the lease
provides for ten successive five-year renewal options on the same terms and
conditions. The Kmart lease does not contain any operating covenants and the
tenant may freely assign or sublet the premises, provided, however, that the
tenant remains primarily liable for all covenants under the lease.
Cranberry Mall in Westminster, Maryland, which includes approximately 55.61
acres of land, was purchased on October 5, 1988 for $53,847,500. Cranberry
contains approximately 530,000 square feet of gross leasable area including
four anchor tenants: Sears, Caldor, Leggett and Montgomery Ward.
Sears leases approximately 70,000 square feet of gross leasable building area.
Sears is required to use the premises as a Sears retail store until the year
2002 or under such other trade name as the majority of Sears retail stores are
then operating.
Caldor leases approximately 81,200 square feet of gross leasable building area.
During the first 15 years of the lease, ending March 4, 2002, Caldor is
required to use the premises continuously as a Caldor retail department store
or under such other trade name as all Caldor department stores in the Baltimore
area are then operating. For the five years following the initial 15 years of
the lease, the tenant may use the premises for a retail department store under
any trade name.
On September 18, 1995, Caldor filed for protection under the U.S. Federal
Bankruptcy Code. Caldor has been current with its rental payments to the
Partnership since the bankruptcy filing. Pursuant to the provisions of the
Federal Bankruptcy Code, Caldor may, with court approval, choose to reject or
accept the terms of its lease. Should Caldor exercise its right to reject the
lease, this would have an adverse impact on cash flow generated by Cranberry
Mall and revenues received by the Partnership. Until Caldor files a plan of
reorganization, it is uncertain what effect this situation will have on the
Caldor department store located at Cranberry Mall or on Cranberry Mall itself.
Leggett currently leases 65,282 square feet of gross leasable building area.
During the first 15 years of the lease, ending March 4, 2002, the tenant is
required to use the premises as a Leggett's retail department store or under
such other trade name as Leggett's is then operating substantially all of its
department stores.
Montgomery Ward leases approximately 80,000 square feet of gross leasable
building area and 9,000 square feet for an automotive center. During the first
15 years of the lease term, the tenant is required to use the premises as a
retail store under the trade name Montgomery Ward or under such other name as
the tenant is doing business in the majority of its retail department stores in
the State of Maryland.
The following is a schedule of the remaining minimum lease payments as called
for under the lease agreements:
Year ending
December 31, Assembly Cranberry
1996 $ 2,329,671 $ 4,557,773
1997 1,994,055 3,810,947
1998 1,953,433 3,256,386
1999 1,834,440 2,877,881
2000 1,682,270 2,593,481
Thereafter 4,713,095 13,487,899
$ 14,506,964 $ 30,584,367
In addition to the minimum lease amounts, the leases provide for percentage
rents and escalation charges to tenants for common area maintenance and real
estate taxes. For the years ended December 31, 1995, 1994 and 1993,
respectively, percentage rents amounted to $91,191, $244,143 and $180,664 for
Assembly Square and $269,609, $205,473 and $155,112 for Cranberry; these
amounts are included in rental income. For the years ended December 31, 1995,
1994 and 1993, respectively, temporary tenant income amounted to $270,498,
$324,731 and $280,230 for Assembly Square and $330,111, $217,545 and $219,920
for Cranberry; these amounts are included in rental income.
The appraised fair market values, as determined by an independent, third party
appraisal firm, at January 1, 1996 and 1995 were $23,500,000 and $38,500,000,
respectively, for Assembly Square and $44,000,000 and $48,000,000,
respectively, for Cranberry.
The decrease in the appraised fair market value of Assembly Square from
December 31, 1994, to December 31, 1995, and the near term maturity date of the
Assembly Square mortgage loan were determined by management to be indicators of
impairment of the carrying value of Assembly Square. Management completed a
recoverability review of the carrying value of Assembly Square based upon an
estimate of undiscounted future cash flows expected to result from its use and
eventual disposition. As of December 31, 1995, management concluded that the
sum of the undiscounted future cash flows estimated to be generated by Assembly
Square are less than its carrying value and, as a result, the Partnership
recorded a write-down of $17,903,567 to reduce Assembly Square's carrying value
to its estimated fair value of $23,500,000.
4. Partnership Agreement
The Partnership has a 98% interest in the operating income, profits and cash
distributions, and a 99% interest in the operating losses, of the Owner
Partnership. The Limited Partnership Agreement provides that all operating
income, operating losses and cash distributions are generally allocated 1% to
the General Partner and 99% to the limited partners.
5. Construction Escrow
In connection with the purchase of Assembly Square, $2,771,000 was held in
escrow from the proceeds of the Assembly Square note for the possible expansion
of the Jordan Marsh store. Pursuant to the amended Assembly Square mortgage
and a Jordan Marsh lease amendment, the Partnership paid $2,000,000 from the
escrow to the lender to reduce the Assembly Square mortgage principal balance
in 1992. Pursuant to the Partnership and Owner Partnership Agreements, 75% of
the remaining escrow balance was distributed to the limited partners and 25%
was added to the Partnership's working capital reserve.
In 1990, the Partnership borrowed $3,775,000 to fund the expansion of
Montgomery Ward at Cranberry. During 1991, $3,425,000 of the funds were
released. The remaining proceeds inclusive of interest income totalling
$416,568, remain in the construction escrow account as of December 31, 1995.
6. Mortgages Payable
1995 1994
Secured by the Mall at Assembly Square.
Principal and interest, at 8.50%, payable monthly
until maturity on November 1, 1997 $ 24,298,013 $ 24,862,496
Secured by Cranberry Mall. Interest only,
at 7.25%, payable monthly until maturity on
April 1, 1999 27,250,000 27,250,000
Secured by Cranberry Mall. Interest only,
at 7.25%, payable monthly until maturity on
April 1, 1999 3,775,000 3,775,000
$ 55,323,013 $ 55,887,496
On January 15, 1993, the Owner Partnership amended the $28,000,000 Assembly
Square mortgage payable which matured on November 1, 1992. Under the terms of
the agreement, the amended Assembly Square Note, effective November 1, 1992,
will mature on November 1, 1997, bear interest at a rate of 8.5% per annum, and
will require monthly payments of principal and interest based upon a
twenty-year amortization schedule.
As a condition of the modification of the Assembly Note, the Partnership agreed
to renovate the interior of Assembly Square. In addition, a capital cost and
leasing escrow (the "Escrow") was required to be established over the life of
the amended Assembly Square Note. The Partnership expended approximately $2.7
million for capital improvements from Partnership cash reserves and the Escrow
which was established at the closing. At December 31, 1995, $955,915 had been
released from the Assembly Capital Improvement Escrow to fund capital costs at
Assembly Square.
It is not practicable for the Partnership to estimate the fair value of the
Assembly Note as no quoted market price exists and the cost of obtaining an
independent valuation appears excessive to the Partnership. However, the
Partnership believes the fair value of the Assembly Note is no more than the
estimated fair market value of Assembly Square.
The note secured by Cranberry Mall matured on November 1, 1993. The lender,
Metropolitan Life Insurance Company, agreed to extend the note at its current
terms until May 1, 1994. During the extension period (from November 1, 1993 to
May 1, 1994) the General Partner and Metropolitan Life Insurance Co. continued
discussions and reached an agreement to modify and extend the Note on mutually
acceptable terms. Under the terms of the agreement, the amended Cranberry Mall
Note, effective April 1, 1994, requires payments of interest only on the unpaid
principal balance of $31,025,000 at an interest rate of 7.25% per annum until
its maturity on April 1, 1999.
Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar terms, the fair value of the Cranberry Mall note
approximates its carrying value.
The following is a schedule of principal payments for the next four years.
Year ending
December 31, Assembly Cranberry
1996 $ 726,153 $ 0
1997 23,571,860 0
1998 0 0
1999 0 31,025,000
$24,298,013 $ 31,025,000
7. Transactions With Related Parties
Under the terms of the Partnership Agreement, the Partnership reimburses the
General Partner, at cost, for the performance of certain administrative
services provided by a third party. For the years ended December 31, 1995,
1994, and 1993, costs of such services were $77,955, $46,127, and $60,758,
respectively. At December 31, 1995 and 1994, $17,006 and $30,772 were due to
the General Partner for the performance of these services.
Cash and Cash Equivalents
Certain cash accounts reflected on the Partnership's consolidated balance
sheets at December 31, 1995 and 1994 were on deposit with an affiliate of the
General Partner.
8. Management Agreement
The Partnership entered into an agreement with Shopco Management Corporation,
an affiliate of the Owner Partnership, for the management of the Malls through
December 31, 1998. The agreement provides for an annual fee equal to 3% of the
gross rents collected from the Malls. Effective January 1, 1995, the fee was
increased to 4% of the gross rents collected from the Malls. For the years
ended December 31, 1995, 1994 and 1993, respectively, management fees earned by
Shopco Management Corporation were $321,379, $248,659 and $244,901,
respectively.
9. Distributions to Limited Partners
Distributions to the limited partners for each of 1995, 1994 and 1993 were
$1,053,750 ($15 per limited partnership unit), $0 and $578,250 ($8.23 per
limited partnership unit) representing a special distribution paid from the
funds previously escrowed for the expansion of the Jordan Marsh store at
Assembly Square. Cash distributions declared payable to limited partners at
December 31, 1995 and 1994 were $265,603 ($3.78 per limited partnership unit)
and $0.
10. Reconciliation of Consolidated Financial Statement Net Income (Loss) and
Partners' Capital To Federal Income Tax Basis Net Income (Loss) and Partners'
Capital
Reconciliations of financial statement net income (loss) and partners' capital
to federal income tax basis net income (loss) and partners' capital follow:
1995 1994 1993
Financial statement consolidated
net income (loss) $ (17,536,302) $ 693,491 $ (447,387)
Tax basis amortization over
financial statement amortization 0 0 (66,656)
Tax basis depreciation over
financial statement depreciation (357,373) (411,135) (408,596)
Tax basis recognition of deferred
income over (under) financial statement
recognition of deferred income (6,913) (50,777) (19,270)
Tax basis recognition of real estate
taxes under (over) financial statement
recognition of real estate taxes (2,497) 2,258 19,749
Tax basis recognition of rental income
over (under) financial statement
recognition of rental income 25,007 27,680 (81,561)
Financial statement loss on write-down
of real estate 17,903,567 0 0
Other 5,317 (15,680) (3,945)
Federal income tax basis net
income (loss) $ 30,806 $ 245,837 $(1,007,666)
1995 1994 1993
Financial statement basis partners'
capital $25,607,532 $ 44,197,584 $43,504,093
Current year financial statement
net income (loss) over (under)
federal income tax basis
net income (loss) 17,567,108 (447,654) (560,279)
Cumulative federal income tax
basis net loss over (under)
cumulative financial statement
net loss (112,166) 335,488 895,767
Federal income tax basis partners'
capital $43,062,474 $ 44,085,418 $43,839,581
Because many types of transactions are susceptible to varying interpretations
under Federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
respective taxing authorities.
11. Litigation
On March 7, 1996, a purported class action, Ressner v. Lehman Brothers, Inc.,
was commenced on behalf of, among others, all Unitholders in the Court of
Chancery for New Castle County, Delaware, against the General Partner of the
Partnership, Lehman Brothers, Inc. and others (the "Defendants"). The
complaint alleges, among other things, that the Unitholders were induced to
purchase Units based upon misrepresentation and/or omitted statements in the
sales materials used in connection with the offering of Units in the
Partnership. The complaint purports to assert a claim for breach of fiduciary
duty based on the foregoing. The Defendants intend to defend the action
vigorously.
Schedule II Valuation and Qualifying Accounts
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
Allowance for doubtful accounts:
Year ended December 31, 1993: $ 434,600 $ 370,201 $ 77,803 $ 726,998
Year ended December 31, 1994: 726,998 112,131 234,531 604,598
Year ended December 31, 1995: $ 604,598 $ 342,127 $ 148,942 $ 797,783
SHOPCO REGIONAL MALLS, L.P. AND CONSOLIDATED PARTNERSHIP
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Cost Capitalized
Subsequent
Initial Cost to Partnership (1) To Acquisition
------------------------------ --------------
Land,
Buildings and Buildings and
Description Encumbrances Land Improvements Improvements
Shopping Center
Westminster, MD $ 31,025,000 $ 6,610,235 $ 47,649,669 $ 5,403,227
Shopping Center
Somerville, MA $ 24,298,013 $ 8,979,399 $ 33,468,672 $ 5,702,482
$ 55,323,013 $15,589,634 $ 81,118,341 $ 11,105,709
Gross Amount at Which Carried at Close
of Period (2)
-------------------------------------
Buildings and Accumulated
Description Land Improvements Total Depreciation
Shopping Center
Westminster, MD $ 6,442,554 $ 53,220,577 $ 59,663,131 $ 10,001,339
Shopping Center
Somerville, MA $ 9,249,802 $38,900,751 48,150,553 $ 128,319
Provision for loss (4,362,809) (20,159,425) (24,522,234) 0
$ 11,329,547 $ 71,961,903 $ 83,291,450 $ 10,129,658
Life on which
Depreciation
in Latest
Date of Date Income Statements
Description Construction Acquired is Computed
Shopping Center
Westminster, MD 1980 10/88 (3)
Shopping Center
Somerville, MA 1987 10/88 (3)
(1) The initial cost to the Partnership represents the original purchase
price of the property.
(2) For Federal income tax purposes, the costs basis of the land, building
and improvements at December 31, 1995 is $110,311,776.
(3) Buildings - 40 years; personal property - 12 years; tenant
improvements - 7 years.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1995, 1994 and 1993:
Real Estate investments: 1995 1994 1993
Beginning of year $ 107,034,954 $ 106,118,099 $ 103,425,878
Additions 836,706 916,855 2,692,221
Write-Down (24,522,234) 0 0
Dispositions (57,976) 0 0
End of year $ 83,291,450 $ 107,034,954 $ 106,118,099
Accumulated Depreciation:
Beginning of year $ 14,227,478 $ 11,755,364 $ 9,370,380
Depreciation expense 2,520,847 2,472,114 2,384,984
Write-Down (6,618,667) 0 0
Dispositions 0 0 0
End of year $ 10,129,658 $ 14,227,478 $ 11,755,364
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,732,256
<SECURITIES> 000
<RECEIVABLES> 1,496,470
<ALLOWANCES> 797,783
<INVENTORY> 000
<CURRENT-ASSETS> 1,052,241
<PP&E> 83,291,450
<DEPRECIATION> 10,129,658
<TOTAL-ASSETS> 81,654,976
<CURRENT-LIABILITIES> 1,122,108
<BONDS> 55,323,013
<COMMON> 000
000
000
<OTHER-SE> 000
<TOTAL-LIABILITY-AND-EQUITY> 81,654,976
<SALES> 8,156,792
<TOTAL-REVENUES> 13,806,391
<CGS> 000
<TOTAL-COSTS> 5,015,637
<OTHER-EXPENSES> 4,260,408
<LOSS-PROVISION> 17,903,567
<INTEREST-EXPENSE> 4,339,057
<INCOME-PRETAX> (17,536,302)
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (17,536,302)
<EPS-PRIMARY> (247.13)
<EPS-DILUTED> (247.13)
</TABLE>
